What is Chapter 9 Bankruptcy?

Chapter 9 of the US Bankruptcy Code is applicable to US municipalities, including towns, counties, cities, tax districts, municipal utilities, and school districts. This chapter allows a type of reorganization that allows distressed municipalities to pay back their debt while under bankruptcy protection.

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How Does Chapter 9 Bankruptcy Work?

The provision of Chapter 9 is quite different from other chapters of the bankruptcy code. This chapter prohibits the liquidation of assets belonging to municipalities. Municipalities are under the jurisdiction of the United States, hence, it is impossible to liquidate their assets in order to pay back the creditors. 

Only municipalities are eligible to file for a Chapter 9 bankruptcy, the municipality must, however, meet the four requirements below;

• The municipality must be insolvent.
• The municipality must be authorized to file for Chapter 9 under the law of the state.
• The municipality must be willing to reorganize its debts.
• It must provide evidence of negotiation of good faith or an agreement with the creditors. If it is impossible to negotiate or obtain an agreement with creditors, it should also be stated.

Related Topics

• What is Bankruptcy?
• Insolvency - Definition
• What are the types of business bankruptcy?
• Chapter 9 Bankruptcy
• Chapter 12 Bankruptcy
• Chapter 15 Bankruptcy